—————————————————————————
Spotlight

House Ways and Means Committee Chairman Kevin Brady (R-TX) this week was quoted as saying the Republican tax reform plan will include border adjustability, but said the committee is open to suggestions as to how to deal with the transition to the new system. The Chairman acknowledged industry concern with border adjustability, but indicated that that aspect of tax reform is strongly supported by House tax leaders. He added that the US cannot leave in place a system that encourages US companies to move their operations overseas, manufacture and then sell those goods back into the United States.

The IRS Large Business and International Division will release an initial list of 6-12 audit campaigns in late January 2017 that will include both inbound and outbound international tax issues. An IRS official was quoted as saying each of the campaigns will have executive leadership to relieve bottlenecks. The official also disclosed that two of the campaigns will focus on chapter 3 withholding and inbound distributors, respectively.

In other IRS news, an official this week was quoted as saying the pending cross-border partnership transfer regulations will be effective for transfers occurring on or after 6 August 2015. In Notice 2015-54, the IRS announced that forthcoming regulations under Section 721(c) will create an exception to the general nonrecognition rule (i.e., there will be immediate gain recognition) for property contributions to a partnership in exchange for a partnership interest under Section 721(a). The official added that the Service has received helpful public comments, and the future regulations will include new rules that will be prospective, although other portions of the regulations package will be effective back to the issuance of the Notice in August 2015. No temporary or proposed regulations have been released to date.

Finally, in regard to how taxpayers can voluntarily file country-by-country reports for the 2016 period, a senior IRS official said the government will issue some guidance soon, but that in any event, the Service is committed to accepting voluntary filing for 2016.

The IRS on 22 December issued Notice 2017-07, modifying the effective date of the deferral rules of Reg. Section 1.987-12(T), which apply to deferral events and outbound loss events. In general, the deferral rules apply to any deferral event or outbound loss event that occurs on or after 6 January 2017. However, under Reg. Section 1.987-12T(j)(2), the deferral rules apply to any deferral event or outbound loss event that occurs on or after 7 December 2016, if such deferral event or outbound loss event is undertaken with a principal purpose of recognizing Section 987 gain or loss.

The Notice modifies the effective date provisions so that Reg. Section 1.987-12T(j)(2) also will apply to any deferral event or outbound loss event that is undertaken with a principal purpose of recognizing Section 987 gain or loss and that occurs as a result of a change in entity classification made under the Reg. Section 301.7701-3 (the so-called "check the box regulations") that is filed on or after 22 December 2016, and that is effective before 7 December 2016. In addition, the Notice modifies the general effective date rule, so that the deferral rules will apply to any deferral event or outbound loss event that occurs as a result of an entity classification election made under Section 301.7701-3 that is filed on or after 6 January 2017, and that is effective before 6 January 2017. The Notice explains that this change is made to "prevent abuse."